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Credit invoice example for corporations

hi everyone welcome back to sahab Academy today in this video we are going to discuss about debit note and credit note how it all works what's the difference between these two and everything we are going to understand so let's just begin this video and let's discuss about debit note and credit note now see here we have this beautiful example to understand the concept of debit note and credit note which is very simple and straightforward let's just say there was this Dr ruhi Who has worked in an hospital for many years and she is well known by all the people so now she felt that she should open her own clinic and along with that a pharmacy okay and let's just say she did that she opened her own clinic and pharmacy now she needed medical equipment so she purchased medical equipments from somewhere and now she needed medical supplies so she contacted A supplier called as KK Industries whom she knew from the hospital days only so KK Industries agreed to provide Prov her medical supplies on credit that's the main thing on credit which means Dr RI will not pay any money right now she promise to pay money after 3 months so Dr roui purchased medical supplies worth 9 lakh rupees on credit okay 900,000 so KK Industries agreed and KK Industries you know shipped the medical supplies and it was delivered to Dr roui from the point of Dr roui this is a credit purchase and from the point of view of KK Industries it is what credit sale you all know this yeah so the invoice amount is of 9 lakh okay so how the transaction will be recorded in the books of Dr roui Dr roui will record purchase account debit 2 KK Industries 9 lakh 9 lakh what's the logic of this journal entry you will say purchase account purchase has happened so N9 lakh we have recorded and Dr rui accepts that she has to pay 9 lakh money after 3 months to KK Industries so that's why she's crediting KK Industries a payable she's recording right of n lakh liability is increasing so she's recording like that she's crediting KK Industries is it clear simple and straightforward on the other hand for KK Industries it's a credit sale transaction so KK Industries will have to receive money after 3 months so KK industry will debit Dr roui account yeah Dr RI is their asset receivable they have to receive money in future after 3 months so you know Dr roui account debit 9 lakh to sales account sales is their income isn't it it's their income yeah they have made sales so they have to record the sales simple and straightforward then what happened was understand after checking all the boxes and everything Dr RI found a box worth 1 lakh was Dam damaged in transit yeah she comes to know medical supplies worth 1 lakh are damaged in transit right so obviously she will return this so this is a case of purchase return it's a transaction of purchase return she will immediately call the KK Industries and let them know one of the box was damaged in transit and I am returning it so KK Industries said okay fine just you know send the items back to us and we will accept the return after checking and everything and we will issue a credit note now what is this we don't know okay fine so tell me how purchase return will be recorded in Dr rui's books you will see it's really simple purchase return is opposite to purchase account so purchase return account is credited yeah purchase account is debited so oppos opposite to that purchase return will be credited fine and then the debit would be what debit would be KK Industries because Dr roui doesn't have to pay 1 lak to K industry because she has returned one lakh worth of items isn't it yes so KK Industries account will be debited remember this KK Industries account will be debited what is the meaning of this meaning is liability is reducing payables are reducing she doesn't have to pay one lakh anymore after three months right she will pay only eight lakhs not n lakhs only eight lakhs liability is being reduced so she is debiting that is that clear okay so she she returned the Box okay she returned the Box along with the debit note now what is this debit note understand debit note is a document used to inform to notify the other party who other party KK industries that we have we have debited debited their account in our books isn't it Dr ruie has debited KK Industries in her own books she has reduced the liability the payables how would the debit note look like debit note would look like this debit note Dr Ru his Clinic the address of Dr rui's clinic and then debit note number every debit note will have a you know a number okay fine the date of the debit Noe when it was issued to whom this debit Noe is being sent it is being sent to KK Industries the supplier the seller and then we are debiting your account by one lak 100,000 for below mentioned reason medical supplies returned due to damage in transit yes that's the reason it is prepared by Dr rui or her accountant name will come over here with his signature and everything and then here there will be the stamp of Dr ri's clinic is it clear the format can be different also but these are the main things that should be there in a debit note okay is it clear simple and straightforward you don't have to remember it it's just common sense so the Box will be received by KK Industries the damage box okay yeah see here all right send the items back to us and we will reduce the amount receivable from you and issue a credit note yes that's what the KK industry said on the phone yeah with Dr rui now they have received the Box they have received the debit note right so they got to know that they have debited Dr roui has debited their account in their own books now KK Industries has to record what from Dr the ri's point of view it's a purchase return from KK industry's point of view it's a sales return Isn't it yes they have made a sales now they have got a return so it's a sales return how to record sales return sales return is opposite to sales so it will be debited sales return account debit one lakh and credit will be what to Dr roui account 1 lakh why Dr RI account is getting credited understand in future KK Industries is not going to receive one lakh from Dr roui they are going to receive only 8 lakh so they have to reduce the amount receivable from Dr roui so they have done that over here to Dr roui account they have credited the roui account roui is an asset account a receivable account they are crediting it they are decreasing it because they will not receive one lakh from Dr roui They will receive only the remaining amount 8 lakhs okay fine understood asset is being reduced over here here receivables was reduced and Here Pay Ables was reduced yes now they will email a credit note to Dr roui after passing this entry yeah what is this credit note credit note is a document used to inform to notify the other party the other party is Dr rui that we have credited their account in our book see here ri account is credited over here that's why we use credit note okay so you understood clearly now the purpose of debit note and credit note debit note is issued to inform the other party that we have debited and understand by issuing a debit note what did Dr RI do Dr rui reduced payables she's a buyer she reduced payables she reduced the invoice amount on the other hand KK Industries when they issued the credit note and they are the seller what happened they reduced the invoice amount they reduce their receivables the amount that they have to receive from their buyer is it clear document used to inform the other party that we have credited their account in our books now how does this credit note looks like see here it's really simple the same way credit note KK Industries the address of KK Industries credit note number yes debit note or credit note it will have a distinct number the date when the credit note was issued to whom it is being sent it is sent to the Dr rui their buyer their customer right we are crediting your account by one lakh for below mentioned reason isn't it medical supplies returned due to damage in transit is it clear prepared by KK Industries or their accountant name and signature will come over here and then the stamp over here is it clear simple and straightforward you it's Common Sense the format and everything okay so you have clearly understood what is debit note and what is credit note now let me tell you understand this is one of the common example I gave you purchase return and for the other party it's a sales return yeah see here it is not necessary that buyer will only issue debit note or seller will only issue credit note no understand buyer can issue debit note as well as credit note seller can issue debit note as well as credit note it depends upon the situation what happens if buyer issues debit node if buyer issues debit node then invoice amount goes down right and if the buyer issues credit node the invoice amount goes up yeah and buyer payable will also go down and payable will also go up right I mean in debit node it will go down in credit node it will go up okay that's what we saw over here buyer issued what debit Noe what happened invoice amount went down from 9 lakh to 8 lakh isn't it one lakh was reduced payable was reduced payable was reduced because of debit note and the case was purchase return yes now it can also happen that seller can overcharge the buyer instead instead of 9 lakh seller can charge let just say 10 lakh okay actually the supplies which were received by Dr RI was of n lakh Only but in the invoice KK industry said pay me 10 lakh so that's a case of overcharging the customer okay so that's because of a mistake okay wrong amount in the invoice so now what the Dr roui will do Dr he will call the KK Industries and confirm everything and then you know issue a which note debit note okay debit note because of debit note what will happen the amount will reduce payables will reduce let just say by one lak we said 10 lakh right actual was only n so one lakh extra was there so one lakh we reduce so that's the case of seller has overcharged us is it clear simple now buyer can also issue a credit note because of credit note what happens invoice amount will increase and payables will also increase let's just say for example the actual supplies was of 9 lakh okay Dr RI received the items worth 10 lakh 10 lakh they received right so if they have received 10 lakh worth of items then they will call the KK industry and let them know that we have received extra one lakh then KK Industries will say Okay issue us a credit note issue us a credit note then they will issue a credit note who the buyer will issue Dr rohi will issue okay because of credit nodee what will happen KK Industries account will get credited not debited credited liability will increase even more by 1 lakh okay it will increase to 10 lakh one lakh will be credited okay so that's the case of seller has undercharged yeah they undercharged isn't it in the invoice they charge only 9 lakh but let's just say the ri received 10 lakh worth of items that's what I said is that clear so that's the case is that clear and then from the seller it's exactly opposite right you already saw purchase return yeah for seller it is sales return and then seller overcharge is the same thing only have the same example it's just that if the seller is issuing first then he will issue credit note and in undercharge case if seller is issuing then he will issue debit note it's like that and understand for seller what will happen if he's issuing the debit Noe his receivables are increasing invoice amount is increasing if he's issuing credit node receivables are decreasing invoice amount is decreasing understand over here what happened over here he issued a credit note because he was crediting his receivables yeah his data Dr roui invoice amount was decreasing the amount was decreasing receivable was decreasing he issued a credit note receivable was decreasing is that clear so that's the thing fine so these are the cases when you know a debit note or credit note can be issued so with this example easily you can understand the complete logic of debit note and credit note is that clear I hope you have understood this okay see you in the next video bye